Electricity sector in Nicaragua

"Source": CEPAL 2007

Transmission

In Nicaragua, 100% of the transmission is handled by ENATREL, which is also in charge of the system’s dispatchCEPAL 2007] .

Distribution

In Nicaragua, the company Dissur-Disnorte, owned by the Spanish Unión Fenosa, controls 95% of the distribution. Other companies with minor contributions are Bluefields, Wiwilí and ATDER-BL. CEPAL 2007]

Renewable energy resources

The “Indicative plan for the generation in the electricity sector in Nicaragua, 2003-2014” does not set any target or legal obligation for the development of renewable resources in the country. [http://cdm.unfccc.int/UserManagement/FileStorage/DVPF9FQ766NH7G6XKBEDNLY4R9X1TQ San Jacinto Tizate geothermal PDD] ] . However, in April 2005, the government approved Law No. 532., the [http://www.bcn.cl/carpeta_temas/temas_portada.2006-12-18.7650530977/legislacion-extranjera/nicaragua.pdf “Law on Promotion of Electricity Generation with Renewable Resources”] . This law declared the development and exploitation of renewable resources to be in the national interest and established tax incentives for renewables.

Hydroelectricity

Currently, hydroelectric plants account only for 10% of the electricity produced in Nicaragua. The public company Hidrogesa owns and operates the two existing plants (Centroamérica and Santa Bárbara). As a response to the recent (and still unresolved) energy crisis linked to Nicaragua’s overdependence on oil products for the generation of electricity, there are plans for the construction of new hydroelectric plants. In 2006 the Central American Bank for Economic Integration (BCIE) and the Government reached an agreement by which the BCIE will provide US$120 million in the next five years (2007-2012) in order to finance several hydroelectric projects: [ [http://impreso.elnuevodiario.com.ni/2006/11/20/economia/34416 El Nuevo Diario (1)] ]
* Modernization of the Centroamérica and Santa Bárbara plants, which generate 50MW each.
* US$37 million for the design, construction and initial operation of the 17MW Larreynaga hydroelectric plant, to be located 161 km North of Managua, in the Department of Jinotega.
* US$42-45 million for the design, construction and initial operation of the 21MW Sirena-Los Calpules hydroelectric plant.

In March 2008 the government of Iran approved a US$ 230 million credit for the construction of a 70MW hydropower plant by the name of Bodoke on the Tuma River in the northern department of Jinotega. According to press reports the project will be carried out by a state-owned Iranian company with financing from the Iranian Export Bank under an agreement with the Nicaraguan Ministry of Energy and Mines. [ La Prensa, Panama, March 14, 2008, p. 50A, quoting an Associated Press news release; see also [http://www.iht.com/articles/ap/2008/03/13/america/LA-GEN-Nicaragua-Iran.php International Herald Tribune] . ]

Wind

Nicaragua’s wind potential is still unexploited. However, steps are being taken, partially thanks to the new framework created by Law No.532.

In February 2007, the Wind Consortium Amayo signed a contract with the distribution company Unión Fenosa (Disnorte-Dissur) for the installation of 40MW of wind power. The 19 wind turbines will be placed in the Amayo property, 130 km South of Managua, in the Department of Rivas. This new development, which will start operations in 2008, is expected to generate 148 GWh per year during 15 years.

Geothermal

Nicaragua is a country endowed with large geothermal potential thanks to the presence of volcanoes of the Marribios range along the Pacific Coast. However, the country is still very far from exploiting this natural resource extensively and efficiently. [http://cdm.unfccc.int/UserManagement/FileStorage/DVPF9FQ766NH7G6XKBEDNLY4R9X1TQ San Jacinto Tizate geothermal PDD] ] Law No. 443 regulates the exploration and exploitation of geothermal resources.

The larger of two operating geothermal plants is the Momotombo geothermal project, whose commercial exploitation started in 1983, when the first geothermal unit of 35MW was put in operation. The second unit of 35MW was installed in 1989. However, mismanagement of the exploitation led to declines in output levels down to 10MW. It is expected that with the implementation of a reinjection program and the exploitation of a deeper reservoir, production will increase from the current 20MW to 75 MW. [http://cdm.unfccc.int/UserManagement/FileStorage/DVPF9FQ766NH7G6XKBEDNLY4R9X1TQ San Jacinto Tizate geothermal PDD] ]

In January 2006, Polaris Energy Nicaragua reported that it would begin construction of the 31.4 MW San Jacinto Tizate geothermal plant, now a registered CDM project (see CDM projects in electricity below), which is expected to start operations at the end of 2007. After completion of stage II in 2009, the geothermal plant will have total installed capacity of 66 MW. [http://www.eia.doe.gov/emeu/cabs/Central_America/Electricity.html Energy Information Administration] ] As of 2/14/07 they have an installed capacity of 10mw.

Biomass

Sugarcane bagasse feeds 10% of electricity generation in thermal plants in Nicaragua.

History of the electricity sector and recent developments

Integrated state monopoly (1979-1992)

Until the early 1990s, the electricity sector in Nicaragua was characterized by the presence of the State, through the Nicaraguan Energy Institute (INE), in all its activities. Created in 1979, INE had Ministry status and was a vertically integrated state monopoly responsible for planning, regulation, policy making, development and operation of the country’s energy resources. During that decade, the sector faced serious financial and operational problems as a result of the currency devaluation, war, a trade embargo imposed by the United States and the lack of resources for investment in operation and maintenance of the electricity system. IADB 2004]

Sector reforms (1992-2002)

At the beginning of the 1990s, the government of President Violeta Chamorro started the reform of the electricity sector aiming to ensure efficient demand coverage, to promote economic efficiency and to attract resources for infrastructure expansion. In 1992, INE was allowed, by law, to negotiate contracts and concessions with private investors. The Nicaraguan Electricity Company (ENEL) was created in 1994 as the state company in charge of electricity generation, transmission, distribution, commercialization and coordination of the operations previously assigned to INE. INE kept its planning, policy making, regulatory, and taxation functions.IADB 2004]

The reform process was consolidated in 1998 with Law 272 (Electricity Industry Law - LIE) and Law 271 (INE Reform Law). The reform of the INE led to the creation of the National Energy Commission (CNE), which assumed the policy making and planning responsibilities. Law 272 established the basic principles for the operation of a competitive wholesale market with the participation of private companies. Electricity generation, transmission and distribution were unbundled and companies were prohibited to have interests in more than one of the three activities. ENEL was restructured in four generation companies (Hidrogesa, GEOSA, GECSA and GEMOSA); two distribution companies (DISNORTE and DISSUR), both acquired by Unión Fenosa and then merged into a single company; and one transmission company (ENTRESA, now ENATREL).IADB 2004]

The privatization process that started in 2000 with a public offering of the four generation companies was complicated due both to legal problems and to lack of interest by investors. As a result, ENEL maintained a more relevant role than initially expected. Hidrogesa remained in public hands as the only player in hydroelectric generation while its profits serve to finance the losses of GECSA, which owns the thermal plants that did not attract private interest, and the rural electrification plans in isolated areas.IADB 2004]

The reforms of the 1990s did not achieve their objectives. It had been expected that privatization would bring investment in new generation, but very little capacity was added in the years that followed the reform. Moreover, the generation capacity added in the last decade has been mainly dependent on liquid fuels, making the country more vulnerable to rising oil prices. In addition, as mentioned, distribution losses have remained at very high levels (28%). The reform also aimed at implementing gradual changes in electricity tariffs that would reflect costs, which proved to be politically unfeasible.

Oil price increase, financial stress and blackouts (2002-2006)

When oil prices increased from 2002 onwards, the regulator failed to approve electricity tariff increases, because they were expected to have been very unpopular. The financial burden of the higher generation costs was thus passed on to the privatized distribution company, which has, partly as a result, been suffering severe losses. [http://impreso.elnuevodiario.com.ni/2007/08/02/nacionales/55307 El Nuevo Diario (2)] ] .

In 2006, the electricity sector in Nicaragua suffered a serious crisis, with 4–12-hour blackouts that affected virtually the whole country. The distribution company owned by Unión Fenosa, was blamed and the concession was temporarily cancelled by the government, which called for arbitration. [ [http://www.larepublica.es/spip.php/ecrire/ecrire/spip.php?article1662 LaRepublica.es] ] This led Union Fenosa to call its MIGA (Multilateral Investment Guarantee Agency) guarantee. The crisis was further aggravated by the inability of INE and CNE to cooperate in a constructive manner. The emergency situation improved in 2007 due to the installation of 60MW of diesel generation capacity financed by Venezuela [ [http://www.adital.com.br/site/noticia.asp?lang=ES&cod=27079 Adital] ] .

Creation of the Ministry of Energy (2007)

In January 2007, shortly after President Daniel Ortega took office, a new law created the Ministry of Energy and Mines (MEM), which replaced the CNE. The new Ministry inherited CNE’s responsibilities together with some additional competencies from the INE. Also, in August 2007, an agreement was reached between Unión Fenosa and Nicaragua’s new government. The government committed to pass a law to combat fraud [ [http://www.disnorte-dissur.com.ni/SalaPrensa.aspx?id=159 Disnorte-Dissur] ] , which will help reduce distribution losses and Unión Fenosa will develop an investment plan for the period up to 2012 [http://impreso.elnuevodiario.com.ni/2007/08/02/nacionales/55307 El Nuevo Diario (2)] ] .

Regional integration, the SIEPAC project

In 1995, after almost a decade of preliminary studies, the Central American governments, the government of Spain and the Inter-American Development Bank agreed to the execution of the SIEPAC project. This project aims at the electric integration of the region. Feasibility studies showed that the creation of a regional transmission system would be very positive for the region and lead to a reduction in electricity costs and to improvements in the continuity and reliability of supply. In 1996, the six countries (Panama, Honduras, Guatemala, Costa Rica, Nicaragua and El Salvador) signed the Framework Treaty for the Electricity Market in Central America. [http://www.eprsiepac.com/ SIEPAC project] ]

The design of the Regional Electricity Market (MER) was done in 1997 and approved in 2000. MER is an additional market superimposed on the existing six national markets, with a regional regulation, in which the agents authorized by the Regional Operational Body (EOR) carry out international electricity transactions in the region. As for the infrastructure, EPR ("Empresa Propietaria de la Red S.A.") is in charge of the design, engineering, and construction of about 1,800 km of 230kV transmission lines. [http://www.eprsiepac.com/ SIEPAC project] ] The project is expected to be operational by the end of 2008 [http://www.eia.doe.gov/emeu/cabs/Central_America/Electricity.html Energy Information Administration] ] .

(For a map of the regional transmission line, see [http://www.eprsiepac.com/ruta_siepac_transmision_costa_rica.htm SIEPAC] )

Tariffs and subsidies

Tariffs

Electricity tariffs in Nicaragua had increased only slightly between 1998 and 2005 (in fact, industrial tariffs decrease in that period). However, in 2006 electricity tariffs experienced a high increase relative to 2005: 12% for residential, 26% for commercial and 23% for industrial tariffs. Average tariffs for each of the sectors were: CEPAL 2007]

* Residential: US$0.137 per kWh (LAC weighted average: US$0.115)
* Commercial: US$0.187 per kWh
* Industrial: US$0.101 per kWh (LAC weighted average: US$0.107)

These tariffs are not low; they are in fact among the highest in the Central American region. Residential prices are close to the regional average while industrial prices are the highest in the region. CEPAL 2007]

Subsidies

Currently, there are cross-subsidies in the tariff structure. Medium voltage consumers pay higher tariffs that serve to subsidize lower tariffs for low voltage consumers. Users that consume les than 150 kWh per month receive transfers from the rest of the consumers. The lowest-consumption users (0-50kWh/month) benefit from reductions between 45% and 63% in their average tariff. Consumers above the 50kWh limit also benefit from the subsidy scheme to a smaller extent.

Investment and financing

Generation

In 2007, new “emergency” generation (60MW) has been financed by the Venezuelan government. On the other hand, the new hydroelectric projects will receive both public and private financing, while the ongoing Amayo wind development and the new San Jacinto Tizate geothermal plant are privately funded.

Transmission

Entresa has elaborated a [http://www.enatrel.gob.ni/inversiones/expansion/index.html Plan for transmission infrastructure expansion for the period 2007-2016] . However, financing has not been ensured for all the projects yet. [http://impreso.elnuevodiario.com.ni/2007/08/02/nacionales/55307 El Nuevo Diario (2)] ]

Distribution

In August 2007, Unión Fenosa committed to elaborate an investment plan for the period up to 2012.

Rural electrification

Financing sources for rural electrification are limited. The National Fund for the Development of the Electricity Industry (FODIEN) receives its resources from the concessions and licenses granted by the Nicaraguan Energy Institute (INE). However, funds have been insufficient. IADB 2004] The World Bank (through the PERZA project) and the Swiss government (through FCOSER) have also contributed funds and assistance to advance the objectives of rural electrification in the country.

Summary of private participation in the electricity sector

Electricity generation, transmission and distribution, previously in the hands of state-owned ENEL, were unbundled in 1998. Today, there are 10 generation companies in the National Interconnected system, 8 of which are in private hands. 100% of the hydroelectric capacity is in the hands of the public company Hidrogesa. As for transmission, it is handled solely by state-owned ENATREL, while distribution is 95% controlled by Spanish Unión Fenosa.

Electricity and the environment

Responsibility for the environment

The Ministry of Environment and Natural Resources (MARENA) is the institution in charge of the conservation, protection and sustainable use of the natural resources and the environment.

The National Climate Change Commission was created in 1999. [ [ftp://ftp.fao.org/docrep/fao/006/AD447S/AD447s02.pdf FAO] ]

Greenhouse gas emissions

[http://www.olade.org OLADE] (Latin American Energy Association) estimated that CO2 emissions from electricity production in 2003 were 1.52 million tons of CO2, which corresponds to 39% of total emissions from the energy sector [ [http://www.olade.org/informe.html OLADE] ] . This high contribution to emissions from electricity production in comparison with other countries in the region is due to the high share of thermal generation.

CDM projects in electricity

Currently (November 2007), there are only two registered CDM projects in the electricity sector in Nicaragua, with overall estimated emission reductions of 336,723 tCO2e per year. One of them is the [http://cdm.unfccc.int/UserManagement/FileStorage/DVPF9FQ766NH7G6XKBEDNLY4R9X1TQ San Jacinto Tizate geothermal project] and the other one is the [http://cdm.unfccc.int/Projects/DB/TUEV-SUED1135170073.01/view.html Monte Rosa Bagasse Cogeneration Project] [http://cdm.unfccc.int/Projects/projsearch.html UNFCCC] ]

External assistance

Inter-American Development Bank

The Inter-American Development Bank (IDB) has several projects under implementation in the electricity sector in Nicaragua:

* In October 2007, the IDB approved US$350,500 for the [http://www.iadb.org/projects/Project.cfm?project=NI-T1053&Language=English Support to Power Sector Investment Program] .

* In June 2007, a US$12 million loan was approved for the [http://www.iadb.org/projects/Project.cfm?project=NI-L1015&Language=English National Transmission Strengthening for Integration SIEPAC] project. The objective of this project is to ensure that the Nicaraguan transmission system is adapted for the interconnection with the SIEPAC line. It is necessary to ensure that energy can then be commercialized according to the safety and reliability criteria established by the Regional Electricity System, avoiding service interruptions both at the national and regional levels.

* In June 2006, the IDB also approved a technical cooperation activity for [http://www.iadb.org/projects/Project.cfm?project=NI-T1034&Language=English Energy Efficiency Development in Nicaragua] . The objective of this program is to assist the Government in the design, evaluation and implementation of energy efficiency measures, including the implementation of pilot projects, identification of the information needs and preparation of the loan proposals for implementation of additional energy efficiency measures.

* In December 2005, two wind-related technical cooperation activities were approved, one for the [http://www.iadb.org/projects/Project.cfm?project=NI-T1026&Language=English Development of Wind Power Generation in Isolated Systems] and another one for a [http://www.iadb.org/projects/Project.cfm?project=NI-T1029&Language=English Wind Power Park Feasibility Study in Corn Island] .

World Bank

The World Bank has currently one [http://web.worldbank.org/external/projects/main?pagePK=64283627&piPK=73230&theSitePK=40941&menuPK=228424&Projectid=P073246 Off-grid Rural Electrification (PERZA)] project under implementation in Nicaragua. The US$19 million project will receive US$12 million funding from the Bank in the period 2003-2008. The main objective of the project is to support the sustainable provision of electricity services and associated social and economic benefits in selected rural sites in Nicaragua, and strengthen the Government's institutional capacity to implement its national rural electrification strategy.

Other

Several countries have provided financial support for the expansion of the transmission network in Nicaragua:

* Germany: The German bank KfW has provided financing to several transmission projects in recent years. One of those projects, the construction of the electrical substation Las Colinas and its associated transmission line is to be finalized in December 2007. [ [http://www.enatrel.gob.ni/inversiones/kfw/index.html Enatrel-kfW] ]

* Korea: Korea’s [http://www.koreaexim.go.kr/en/edcf/m02/s03_01.jsp Eximbank] has also provided funds in recent years for the expansion of the transmission system with several electrical substations: Ticuantepe, León I, El Viejo, Nandaime, Boaco and Las Banderas, which have entered into operation between January 2006 and December 2007. [ [http://www.enatrel.gob.ni/inversiones/corea/index.html Enatrel-Eximbank] ]

* Spain: The [http://www.ico.es/web/contenidos/home/home.html Spanish Official Credit Institute (ICO)] and the Fund for Development Assistance (FAD) have provided funds for the construction of the electrical substation of Ticuantepe and the supply of materials for the transmission system in the period 2003-2008. [ [http://www.enatrel.gob.ni/inversiones/espana/index.html Enatrel-Spain] ]

Sources

* CEPAL, 2007. [http://www.eclac.org/publicaciones/xml/1/30101/L809.pdf "Istmo Centroamericano: Estadísticas del Subsector Eléctrico"]

* Inter-American Development Bank, 2004 [http://www.iadb.org/sds/doc/IFM-Dussan-2004-Nicaragua.pdf "Nicaragua: Opciones de Política para la Reforma del Sector Eléctrico"]

See also

* Nicaragua
* Economy of Nicaragua
* Water supply and sanitation in Nicaragua
* History of Nicaragua
* Politics of Nicaragua

Notes

External links

* [http://www.enatrel.gob.ni/ National Transmission Company (ENATREL)]
* [http://www.cndc.org.ni/index2.html National Dispatch Center (CNDC)]
* [http://www.ine.gov.ni Nicaraguan Energy Institute (INE)]
* [http://www.disnorte-dissur.com.ni/ Disnorte & Dissur]
* [http://www.marena.gob.ni/ Ministry of the Environment and Natural Resources (MARENA)]
* [http://www.eprsiepac.com/descripcion_siepac_transmision_costa_rica.htm SIEPAC]
* [http://www.crie.org.gt/site/index.php Regional Commission for Electric Interconnection (CRIE)]
* [http://www.fao.org/docrep/006/ad447s/ad447s00.htm FAO: Nicaragua, facing climate change]
* [http://web.worldbank.org/external/projects/main?pagePK=217672&piPK=95916&theSitePK=40941&menuPK=223661&category=regcountries&regioncode=7&countrycode=NI World Bank projects in Nicaragua]
* [http://www.iadb.org/projects/index.cfm?language=English Inter-American Development Bank projects in Nicaragua]